Real Earnings Management Around CEO Turnovers

52 Pages Posted: 7 Dec 2015 Last revised: 16 Dec 2018

See all articles by Paul Geertsema

Paul Geertsema

University of Auckland - Department of Accounting and Finance

David H. Lont

University of Otago - Department of Accountancy and Finance

Helen Lu

University of Auckland - Department of Accounting and Finance

Date Written: July 30, 2018

Abstract

Following CEO turnovers, US firms adjust real business activities to manage earnings downward (REM bath). This effect is most pronounced in firms with low levels of institutional ownership. REM baths early in CEOs’ tenure can be confounded with legitimate adjustments to business activities. However, we show that they are not accompanied by increases in R&D or capital expenses, nor are they explained by restructuring expenses. CEOs with short tenure record more negative REM measures in their first year of tenure, when compared with CEOs with long tenure.

Keywords: CEO Turnover, Real Earnings Management, Abnormal Operating Performance, Discretionary Accruals

JEL Classification: C23, G30, M41

Suggested Citation

Geertsema, Paul G. and Lont, David H. and Lu, Helen, Real Earnings Management Around CEO Turnovers (July 30, 2018). Available at SSRN: https://ssrn.com/abstract=2700050 or http://dx.doi.org/10.2139/ssrn.2700050

Paul G. Geertsema

University of Auckland - Department of Accounting and Finance ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

David H. Lont

University of Otago - Department of Accountancy and Finance ( email )

Box 56
Dunedin, Otago 9054
New Zealand
+64 3 479 8119 (Phone)
+64 3 479 8171 (Fax)

HOME PAGE: http://www.business.otago.ac.nz/acty/

Helen Lu (Contact Author)

University of Auckland - Department of Accounting and Finance ( email )

Private Bag 92019
Auckland 1001
New Zealand

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